Income Taxes

12 Months Ended

Jun. 30, 2019

The income tax expense for the fiscal years ended June 30, 2019, 2018 and 2017 consists of the following (in thousands):



	Year ended June 30,
	2019			2018		2017
Income Before Income Taxes:
Domestic	$	6,596		$	8,234	$	1,642
International	2,634			1,315		1,268
	$	9,230		$	9,549	$	2,910
Current Taxes:
Federal	$	222		$	2,413	$	1,324
State	176			407		137
Foreign	833			150		510
Total Current Income Tax Provision	$	1,231		$	2,970	$	1,971
Deferred Taxes:
Federal	$	502		$	377	$	(473	)
State	109			59		(21		)
Foreign	(41		)	381		(175		)
Total Deferred Income Tax Provision	$	570		$	817	$	(669	)
Net Income Tax Provision	$	1,801		$	3,787	$	1,302

The effective income tax rate for the fiscal years ended June 30, 2019, 2018 and 2017 differs from the U.S. Federal statutory income tax rate due to the following:



	Year ended June 30,
	2019		2018		2017
Federal statutory income tax rate	21.0	%	28.0	%	34.0	%
State income taxes, net of federal benefit	3.1	%	2.5	%	5.9	%
Foreign tax rate difference	4.5	%	1.6	%	(4.6	)%
Tax return to provision true-up	(1.1	)%	(7.4	)%	0.6	%
Limit on future stock compensation due to 162(m)	2.6	%	0.0	%	0.0	%
Other differences	(0.1	)%	0.2	%	(2.1	)%
Revalue of deferred for change in federal tax rate	(0.6	)%	14.9	%	0.0	%
Permanent differences:
— stock based compensation	(7.7	)%	0.7	%	4.6	%
— foreign derived intangible income deduction	(0.1	)%	0.0	%	0.0	%
— domestic production activities deduction	0.0	%	(1.5	)%	(3.3	)%
— tax credits	(3.7	)%	(1.3	)%	(0.9	)%
— meals and entertainment	0.7	%	0.9	%	3.4	%
— penalties	0.1	%	0.1	%	1.5	%
— other	1.6	%	0.9	%	4.3	%
Change in valuation allowance	(0.8	)%	0.1	%	1.3	%
Net income tax provision	19.5	%	39.7	%	44.7	%

The components of the deferred tax assets and liabilities as of June 30, 2019 and 2018 are as follows (in thousands):



	June 30,
	2019			2018
Deferred tax assets:
Federal, state, and foreign net operating loss carryovers	$	448		$	574
Stock option compensation	1,262			1,367
Accrued vacation, allowance for returns, bonuses & other	2,672			2,615
Gross deferred tax asset	$	4,382		$	4,556

Deferred tax liabilities:
Patents and trademarks	$	(132	)	$	(145	)
Property & equipment	(1,194		)	(823		)
Other	(104		)	(13		)
Gross deferred tax liabilities	(1,430		)	(981		)
Less: valuation allowance	(259		)	(320		)
Deferred tax assets, net	$	2,693		$	3,255

On December 22, 2017, the President of the United States signed into law an extensive tax reform bill known as the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), which overhauled U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21% (blended rate in year one for fiscal year filers), implementing a territorial tax system, imposing a one time "deemed repatriation" tax on all untaxed offshore earnings, and adding/modifying/deleting several major tax deductions significant to the company. For the fiscal year ending June 30, 2018, the Company was taxed at a blended Federal rate of 28%. For the fiscal year ended June 30, 2019, the Company will be taxed at the new 21% Federal Rate.

In addition, the Tax Act also includes a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries and a base erosion anti-abuse tax ("BEAT") measure that taxes certain payments between a U.S. Corporation and its subsidiaries. For the fiscal year ended June 30, 2019, the Company became subject to these provisions. The Company does not meet the threshold to be subject to BEAT, neither does it make the types of payments subject to BEAT. The Company does have an immaterial GILTI liability due to limitations on foreign tax credits.

The Tax Act also eliminated the Section 199 deduction and created the Foreign Derived Intangible Income Deduction ("FDII"). As opposed to the Section 199 deduction, which rewarded companies for domestic manufacturing activities, the FDII deduction rewards companies for foreign sales. In the past, the Company has significantly benefited from the Section 199 deduction, but does not currently derive as great a benefit from the FDII deduction due to our business activities.

The Company has adopted accounting guidance for uncertain tax positions which provides that in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon recognition of the benefit. The Company believes the Company has no material uncertain tax positions and do not expect significant changes in within the next twelve months in the amount of unrecognized tax benefits. Accordingly, the Company has not reserved for interest or penalties. The tax years open for examination by the Internal Revenue Service (“IRS”) include returns for fiscal years June 30, 2016 through present and the open tax years by state tax authorities include returns for fiscal years June 30, 2015 through present. In addition, the IRS and state tax authorities may examine NOL’s for any previous years if utilized by the Company.

As of June 30, 2019, the Company had utilized all of its Federal net operating loss (“NOL”) carry-forwards. The net operating losses were to expire by June 30, 2024 and are subject to review by the Internal Revenue Service, and are subject to U.S. Internal Revenue Code Section 382 limitations. As of June 30, 2019, state NOLs were $7.6 million and foreign NOLs were $0.6 million.

The total recognized tax benefit from settlement of stock based awards for the period ending June 30, 2019 was $0.7 million.

The Company conducts its business globally. As a result, the Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions, and are subject to examination for the open tax years of June 30, 2015 through June 30, 2019.